Old vs new regime: where the break-even actually sits
Run both across a range of incomes and one rule falls out: without HRA the new regime wins at every level, however much 80C you claim. HRA is what reverses it.
Ashish S Kumar5 min read
The usual advice is to “calculate both and pick the lower one”, which is true and almost useless — it tells you to do the work without telling you what the work will show. Run the numbers across a range of incomes and a much sharper rule falls out.
For most salaried people the new regime wins, and it wins by a lot. There is essentially one thing that reverses it, and it is probably not the one you have been optimising for.
Without HRA, it is not close
Take someone claiming almost everything the old regime allows: the full 80C limit, the extra NPS deduction, health insurance for self and parents, and the maximum interest on a self-occupied home loan. That is ₹4.6 lakh of deductions, far more than most people manage.
The new regime still wins at every income level from ₹10 lakh to ₹25 lakh. Not marginally — at ₹20 lakh the gap is roughly ₹77,000 a year in the new regime's favour. The reason is that the new regime's slabs are wide and its rates low enough that the old regime's deductions cannot claw back the difference.
HRA is the variable that flips it
House rent allowance is different from every other deduction in one respect: it scales with your salary. 80C is capped at ₹1.5 lakh whether you earn ₹10 lakh or ₹50 lakh. HRA exemption grows as your salary and rent grow, so it keeps pace with the income being taxed.
Total tax by gross salary, AY 2026-27
- Old regime
- New regime
Below the crossing point the new regime is still ahead, because the standard deduction and the wider slabs outweigh what a smaller salary's HRA can shelter. Above it, the old regime pulls away, and the gap keeps widening — the exemption is growing while the new regime's advantage is fixed.
That crossing point is not a universal number. It moves with your rent, your basic pay and whether you live in one of the four cities that count as metro for this purpose — see the least-of-three test for why those three inputs matter more than the rent alone.
Compare both regimes on your own figures
Runs in your browser — nothing is uploaded. Open the full income tax calculator
What each regime actually allows
| Relief | Old regime | New regime |
|---|---|---|
| Standard deduction on salary | Yes | Yes, and larger |
| HRA exemption under 10(13A) | Yes | No |
| 80C — PF, ELSS, insurance, loan principal | Yes, capped | No |
| 80D — health insurance | Yes | No |
| Home loan interest, self-occupied | Yes | No |
| Employer's NPS contribution, 80CCD(2) | Yes | Yes |
The last row is quietly important and routinely left out of comparisons. The employer's NPS contribution is deductible in both regimes, so a comparison that only counts it on the old side understates the new one. If your employer offers it and you are in the new regime, it is the single deduction still available to you.
How to decide, in four steps
- 1Do you claim HRA? If not, take the new regime and stop.
- 2If you do, work out the exemption properly — the least-of-three test, not the rent you paid.
- 3Add your other deductions. Be honest about what you actually claim, not what you could theoretically claim.
- 4Run both. If the gap is under a few thousand rupees, take the new regime for the simpler filing and the absence of proof-of-investment paperwork.
Frequently asked questions
- Which regime is the default?
- The new regime is the default. If you make no election, that is what applies, and a salaried taxpayer who wants the old regime has to choose it actively.
- Can I switch every year?
- A salaried taxpayer without business income can choose afresh each year. If you have business or professional income the choice is far more restricted — once you opt out of the new regime you generally cannot keep moving back and forth.
- Does the new regime allow any deductions at all?
- It allows the standard deduction on salary and the employer's NPS contribution under 80CCD(2). It does not allow HRA, 80C, 80D or home loan interest on a self-occupied property.
- I own my home rather than renting. Which regime?
- Almost certainly the new one. Interest on a self-occupied home loan is capped at ₹2 lakh, which is a fixed amount, and the new regime's wider slabs generally outweigh it. Interest on a let-out property is treated differently and worth checking separately.
- Is the break-even really at ₹13.5 lakh?
- Only for the specific rent, basic and deduction assumptions in the chart above. It is an illustration of shape, not a threshold to plan around. Your own crossing point depends on your rent relative to your basic pay more than on anything else.
Sources
- 1.Income Tax Department — Government of India
- 2.India Code — the text of central acts — Government of India
Tools from this guide
More on savings & tax
- CTC versus in-hand: where the rest of it goesCost to company includes money that never reaches your payslip. Only one of the four gaps is a genuine loss — the rest is deferred, and the structure decides how much.5 min
- Cumulative or non-cumulative: which FD pays moreOne compounds and pays at maturity, the other pays interest out and never compounds. The rate is usually identical; the return is not, and the tax timing catches people out.5 min
- Why a 444-day FD is not the same as 15 monthsBanks pick odd tenures because they are hard to compare. Interest compounds only on completed quarters, and the leftover days earn simple interest. Here is what that costs.5 min